VC funds raise $607M in 2012

Israeli venture capital funds raised $607 million in 2012, down 30% from the previous year, according to information collected by the IVC Research Center
and analyzed by IVC in cooperation with KPMG Somekh Chaikin Israel.

Among the leading funds, Sequoia V, Pitango VI and Magma III raised a combined sum of $450 million, 74% of the total raised by all Israeli VCs in 2012.

Venture Capital

Israel's JVP among world's top 10 funds / Meir Orbach, Calcalist

Jerusalem Venture Partners' track record includes five VC funds, 19 years of activity, $900 million portfolio and dozens of successful exits

Micro-VC funds continued to attract investments with six micro funds raising a total of $83 million, nearly 14% of total capital raised. Four of the 12 VC funds that raised capital during 2012 were new to the local VC management scene. This compares with eight new players in 2011.

The development of Israel’s
venture capital industry is traced over six cycles covering fund raising vintage years that began in 1992 and peaked in 2000 when more than $2.8 billion was raised.

The sixth and current cycle started in 2011 and, with the previous two cycles (since 2004), Israeli VC funds attracted $6.7 billion or 60% of the $11.1 billion raised since 2000.

Ofer Sela, a partner in KPMG Somekh Chaikin’s Technology group, explains that “fund raising is mostly being carried out by the large VCs that are initiating follow-on funds and – on the other end – relatively small funds that are industry specific and/or early stage focused.

"There are VCs in-between that are no longer attracting new funds. These fund raising trends are similar to those in the US VC industry.”

Ofer adds that "there is a major debate in the industry regarding the optimal fund size that will result in the highest returns to limited partners. As a consequence, we are witnessing VCs reducing the size of their new follow-on funds in an attempt to maximize returns.

"Overall, during the last two years, the number of investment entities making investments in Israel has been on the rise, with most focused on the early stage. We believe that later stage funding will be available to the relevant portfolio companies either from corporate VCs or from foreign VCs operating in Israel.”

Competition from Asian VC funds

According to IVC CEO Koby Simana, "VC funds are facing serious challenges today, not just in Israel but the world over. The allocation for venture capital investments continues to decline among institutional investors.

"On top of that, Israeli VC funds are being challenged by fund raising competition from Asian VC funds – mainly from China and India. There's room for optimism, however. While, on average, funds are raising less, the number of VC-backed companies is likely to rise over the next few years as more VC funds begin to raise capital."

Between 2003 and 2012, Israel’s venture capital funds attracted $6.77 billion. The capital available for investment by Israeli venture capital funds at the beginning of 2013 was approximately $2.1 billion.

Of this amount, $484 million (23%) is earmarked for first investments with the remainder reserved for follow-on investments. According to IVC projections, Israeli VC funds will raise $600 million in 2013.